Monday, August 24, 2009

Vultures of third world debt

A coalition of 50 advocacy groups are calling on the U.S. Congress to stop the practices of Vulture Funds. The funds buy countries debt at pennies on the dollar but charge them huge interest on the purchases. Once the payments are late, the funds sue the governments for what they feel is owed to them.

From Afrik.com, writer Muritala Bakare gives us a further description of the vulture funds practice.

According to the group of fifty advocacy institutions which discovered the “unscrupulous loan transfer” called VULTURE funds, Highly Indebted Countries’ debt are purchased at pennies to dollar and the financial firms "aggressively pursue their claims through the seizure of assets, litigation and political pressure, seeking repayments that are far in excess of the amount that they paid for the debt," the group say.

For instance, FG Hemisphere Fund based in the United States was successful in its court case against the Democratic Republic of Congo for US$105million for a US$30million loan borrowed in 1980 by the government of Mobutu Sese Seko. The DRC was ordered to pay nearly US$80,000 a week by a US judge.

"The DRC is being forced to siphon these desperately needed resources from initiatives like healthcare, education, combating HIV/AIDS, and access to clean water to its impoverished citizens to pay off wealthy corporations such as FG Hemisphere," said Melinda St. Louis, deputy director of the Jubilee USA Network.

"This runs totally counter to the progress made by the U.S. and the international community on debt cancellation, through the World Bank’s Highly Indebted Poor Country (HIPC) effort," St. Louis added.

Renowned experts have been campaigning hard against financial aid to Africa and have argued it does more harm than good. Dembisa Moyo in her controvercial book: Dead Aid, warned that aid damages and impoverishes Africa’s economies.

Michael Stulman, associate director of policy and communications at Africa Action said: "Since 1996 donor countries - including the U.S. - have committed 90 billion dollars in bilateral and multilateral debt relief to over 30 countries. VULTURE funds profit from this debt relief.”